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OCT  “  8  1915 

Reprinted  from  The  Annals  of  the  American  Academy  of  Political  and  Social 
Science,  Philadelphia,  September,  1915. 

Publication  No.  939. 


& 


WAR— OR  SCIENTIFIC  TAXATION 

By  C.  H.  Ingersoll, 

New  York  City. 


Two  important  factors  which  mark  the  growth  of  civilization 
are  an  increasing  control  over  the  forces  of  nature,  and  a  more  minute 
division  of  labor.  The  latter  makes  us  to  a  large  extent  dependent 
on  others,  and  this  has  never  been  more  conclusively  shown  than 
during  the  present  war.  Although  we  are  a  neutral  nation,  the 
struggle  has  affected  every  one  of  us  in  an  economic  sense.  Some 
have  lost — others  gained,  so  far. 

At  any  rate,  the  war’s  costs  are  enormous  and  will  continue  to 
be.  Professor  Charles  Richet,  of  the  University  of  Paris,  estimated 
some  years  ago  that  a  general  European  war  would  cost  approxi¬ 
mately  $50,000,000  a  day.  Recent  figures  from  London  indicate 
that  the  annual  expense  of  England  and  her  allies  will  approxi¬ 
mate  $8,000,000,000  and  the  total  annual  direct  expenditures  of 
the  nations  at  war  will  probably  reach  $16,000,000,000. 

Statistics  of  capital  known  to  be  normally  available  for  invest¬ 
ment  and  securities  are  compiled  year  by  year  by  the  Belgian  Finan¬ 
cial  Publication  Le  Moniteur  des  Inter  els  Materiels  and  these 
^show  the  average  annual  amount  available,  for  the  past  few  years, 
1-to  be  about  $4,000,000,000.  One  year's  war  will  consume  approxi¬ 
mately  four  years’  savings!  A  costly  plaything — War. 

And  I  have  not  yet  spoken  of  the  indirect  costs.  The  enormous 
-'destruction  of  property,  the  almost  complete  disorganization  of  the 
agencies  of  production  and  distribution,  the  economic  loss  sustain 
by  the  almost  unbelievably  large  loss  of  life — these  are  factors  whic 
^cannot  even  be  approximated. 

Who  will  pay  for  this  war?  Will  the  people  of  the  nations  at 
war  stand  all  the  costs,  or  will  they  be  distributed  among  humanity 
in  general?  I  believe  that  we  will  all  have  to  bear  a  share  of  the 
burden,  and  that  it  will  fall  most  heavily  on  those  who  are  least 
fitted  to  stand  up  under  it — the  consumers.  The  consumer  is  the 
laborer  in  more  than  nine  cases  out  of  ten.  Under  the  present  sys¬ 
tem  of  taxation,  business  will  stand  the  first  costs.  But  a  tax  upon 

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The  Annals  of  the  American  Academy 


business  is  a  tax  upon  capital  and  industrial  enterprise,  on  which 
the  consumer-laborer  depends  for  employment.  If  business  thrives, 
the  consumer-laborer  pays  the  tax  in  the  form  of  higher  prices;  if 
the  tax  is  so  high  that  business  cannot  be  conducted  at  a  profit,  he 
pays  it  in  the  form  of  unemployment.  In  other  words,  he  gets  it 
coming  or  going.  Perhaps  it  will  be  in  the  form  of  higher  prices — 
perhaps  increased  unemployment — or  in  some  other  manner,  but 
these  costs  will  be  paid.  For  many  months  we  have  been  paying  the 
costs  in  the  form  of  disorganized  and  dislocated  business,  and  by 
special  taxes  on  proprietary  and  toilet  articles,  telephone  and  tele¬ 
graph  messages,  and  so  on. 

The  government  must  be  supported — that  is  not  open  to  discus¬ 
sion.  Under  the  present  system  governmental  revenues  are  quite 
largely  secured  from  import  duties.  When  this  source  is  cut  off, 
or  lessened,  as  it  has  been  since  the  war  started,  we  pay  the  pen¬ 
alty  in  another  way — and  always  through  taxes  levied  upon  those 
who  have  least  cause  to  have  to  bear  them.  Taxation  as  now  in 
vogue  is  all  bad;  taxes  fully  deserve  the  evil  reputation  they 
bear.  Taxation  today  means  taking  from  people  something  they 
think  they  own;  hence  their  persistent  objections.  This  is 
evidence  of  the  wrong  basis  for  taxation,  and  proof  that  it  is 
interfering  with  normal  life,  industry  and  prosperity.  If  we  want  to 
do  away  with  war,  let  us  first  remove  the  cause — unjust  taxation. 
Can  business  prosper  while  being  driven  from  pillar  to  post  by  the 
tax  assessor?  Or  is  it  better  not  to  have  business  prosper?  A 
stranger  might  reasonably  infer  that  the  prosperity  of  business  is 
decidedly  against  public  policy. 

What  is  the  present  financial  status  of  American  industries? 
We  are  blessed  with  good  crops,  for  one  thing.  In  addition  to  hav¬ 
ing  plenty  for  home  consumption,  we  have  enough  to  feed  several 
of  the  warring  nations  and  some  of  the  neutrals.  The  farmer  instead 
of  worrying  about  how  he  will  pay  the  interest  on  his  mortgage,  now 
spends  his  earnings  assiduously  studying  the  pages  of  the  automobile 
catalogue.  He  is  selling  the  products  of  the  field  at  top  prices,  and 
so  far  at  least,  the  increased  prices  of  the  things  he  has  to  buy  do 
not  equal  his  increased  revenues. 

It  is  the  opinion  of  2,000  leaders  of  thought  and  action  in  the 
financial,  mercantile  and  industrial  field  that  “while  money  is  cheap, 
credit  is  subnormal.”  There  is  a  super-abundance  of  money  in  some 


War — Or  Scientific  Taxation 


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sections  of  the  country,  mainly  in  the  larger  centers.  This  is  to  be 
expected,  for  the  sequence  of  a  period  of  business  depression  is  al¬ 
ways  an  accumulation  of  money  at  the  large  centers  and  a  closer 
scrutiny  of  credit  that  results  in  the  elimination  of  those  who  were 
4  hopelessly  crippled  by  the  panic  but  were  temporarily  carried  along 

by  bankers  until  better  financial  conditions  permitted  of  their  re¬ 
habilitation  through  bankruptcy  or  reorganization,  with  less  shock 
t  to  the  community  and  with  greater  salvage  to  their  creditors.  Econ¬ 

omy  is  general,  and  reports  indicate  that  in  many  instances  it  is 
deliberate  and  is  being  followed  as  a  matter  of  choice  and  not  of 
necessity.  The  Federal  Reserve  Law  is  making  money  easier  to 
secure.  We  have  a  brisk  home  trade  and  a  strong  export  trade  in 
foodstuffs  and  war  materials.  Our  “  balance  of  trade  ”  has  reached 
a  record  figure.  Our  citizens  are  “  Seeing  America  First.  ”  Millions 
of  dollars  are  being  kept  at  home  this  year  through  force  of  necessity. 

This  war  was  not  desired  by  any  nation  now  involved  in  it,  nor 
by  the  people,  nobility  or  ruling  class  of  any  country,  and  was  beyond 
the  power  of  the  world’s  financiers  to  have  averted.  It  is  a  com¬ 
mercial  war,  always  raging,  due  to  the  fact  that  each  nation  is  always 
unconsciously  fighting  to  extend  its  area  of  free  trade.  The  existence 
of  tariff  walls  is  the  prime  cause  of  national  and  racial  hatreds.  On 
the  other  hand,  the  examples  of  the  German  Zollverein  and  the 
United  States  of  America  show  the  mutual  advantage  and  amity 
that  flow  from  state  autonomy  and  the  freedom  of  commerce. 

“Suppose”  with  me  for  a  moment.  Suppose  that  there  were 
tariff  walls  between  the  various  states  of  the  Union.  Now  then — 
Michigan  automobile  manufacturers  are  trying  hard  to  build  up  an 
export  trade  in  South  America.  The  cheapest  method  of  transpor¬ 
tation  is,  we  will  assume,  by  Mississippi  River  boats,  to  New  Orleans. 
But  to  reach  the  Mississippi  or  Ohio,  the  Michigan  manufacturers 
wou’d  have  to  pass  through  Illinois,  Indiana  or  Ohio,  and  there  pay 
a  duty  on  their  products.  Think  of  the  jealousy  and  hatred  this 
would  cause!  We  are  so  accustomed  to  free  trade  within  the  United 
States  that  our  senses  have  failed  to  grasp  the  importance  of  the 
cause  which  has  thrown  Europe  into  a  state  of  indescribable  turmoil. 

The  real  cause  of  the  European  war  was  not  the  shooting  of  an 
Austrian  noble  by  a  Serb — the  real  cause  was  an  economic  one — the 
unconscious  fight  of  each  nation  to  extend  fits  area  of  free  trade. 
Russia,  for  example,  is  a  nation  without  a  good  seaport.  What  is 


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The  Annals  of  the  American  Academy 


more  natural  then,  than  for  her  to  look  with  envy  at  German  soil 
along  the  Baltic,  and  at  the  region  of  the  Dardanelles?  What  would 
prevent  her  from  shipping  her  goods  from  German  ports?  The 
answer  is  the  existence  of  tariff  walls.  If  she  sent  her  goods  through 
Germany,  she  would  be  taxed.  This  is  a  condition  which  has 
existed  for  centuries,  has  caused  numberless  wars,  and  will  continue 
to  create  discord  and  ill-feeling  until  governments  remove  tariff  bar¬ 
riers  and  gain  their  support  from  nature’s  creation  instead  of  from  . 

the  fruits  of  man’s  labor. 

The  remedy— the  only  insurance  against  war — is  a  more  scien¬ 
tific,  rather  a  scientific,  system  of  levying  taxes.  Under  the  present 
system  unimproved  land  goes  almost  free  on  the  theory  that  it  is 
earning  no  income,  and  in  disregard  of  the  fact  that  it  is  a  stumbling 
block,  a  drag  on  development,  and  that  it  is  growing  valuable  by 
the  industrious  efforts  of  others.  Build  a  house,  or  even  paint  one, 
or  beautify  your  property,  and  you  must  pay  a  penalty.  Buy  a 
suit  of  clothes,  a  barrel  of  sugar  or  a  ton  of  coal,  and  you  will  have 
paid  another  fine  that  must  discourage  your  effort  to  live  comfort¬ 
ably.  Our  present  system  is  a  direct  encouragement  to  speculative  . 
inaction,  and  at  every  turn  a  blow  at  honest  industry. 

The  site  tax,  or  tax  on  land  values  would  not  disturb  existing 
titles  to  land  at  all,  but  by  surrounding  users  of  land  with  fair  con¬ 
ditions,  not  now  existing,  would  make  these  titles  absolutely  secure. 

The  force  of  the  change  would  fall  on  those  non-users  or  partial 
users  of  tracts  they  are  holding  for  an  advance  in  price.  For  exam¬ 
ple,  of  two  adjoining  pieces  of  land,  one  is  occupied  by  a  building 
and  other  improvements,  and  the  other  is  in  its  raw  natural  state. 

The  owner  of  the  first  pays  a  high  tax  on  every  building  and  its  con¬ 
tents, — on  even  his  fences,  ditches,  grading  and  so  on,  as  well  as  a 
high  tax  on  the  land  itself,  while  his  neighbor  pays  a  low  tax  on  the 
land  alone.  A  tax  on  site  values  would  remove  all  tax  from  the 
improvements  and  take  the  full  rental  values  of  the  land  only, 
without  considering  in  the  slightest  degree  the  improvements,  thus  * 

lowering  the  tax  paid  by  owner  No.  1.  The  tax  on  the  unimproved 
plot  would  be  increased  three  or  four  times,  bringing  it  to  the  actual 
economic  value,  corresponding  to  the  adjoining  land.  And  what 
would  be  the  net  result  of  this?  First,  an  industrious  man’s  taxes 
would  be  lowered,  and  he  would  be  encouraged  to  make  further 
improvements.  Second,  the  “dog  in  the  manger”  would  realize 


War — Or  Scientific  Taxation 


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that  there  was  no  longer  any  profit  in  holding  land  idle;  so  he  would 
use  it,  build  upon  it,  cultivate  it,  and  employ  labor,  thus  raising 
wages.  Third,  another  house  would  be  in  the  market,  lowering  rents 
for  houses,  and  more  produce  would  be  sent  to  market,  contributing 
to  cheaper  prices  for  such.  Fourth,  as  the  revenues  from  land 
would  more  than  suffice  for  all  expense  of  government,  every  other 
tax  would  be  abated,  so  that  general  public  would  actually  be 
exempt  from  taxation!  The  land  would  take  care  of  it  all,  and 
justly  so,  because  these  same  people  have  made  every  dollar  of 
these  values.  “Every  other  Tax  would  be  abated.”  This  would 
mean  the  end  of  war  and  its  terrors.  There  would  be  little  incentive 
to  reach  out  for  more  land  if  every  country  levied  taxes  on  site 
values  alone. 

.  Great  Britain  made  a  step  in  the  right  direction  by  removing 
tariff  barriers  and  establishing  free  trade.  But  England  did  not 
dig  down  to  the  roots  of  the  question — and  as  a  result  England  has 
perhaps  the  worst  tax  system  of  any  nation.  A  few  nobles — law- 
lords  as  well  as  land-lords — hold  the  greatest  share  of  the  land,  and 
are  encouraged  to  hold  it,  idle  and  useless,  by  a  tax  system  which 
lets  unimproved  land  off  nearly  free  and  puts  a  high  tax  on  improve¬ 
ments. 

The  whole  object  of  any  system  of  taxation  is  that  it  shall  be 
certain,  just,  easily  collected  and  shall  not  be  a  burden  to  industry, 
thrift  and  initiative.  Our  present  system,  in  order  to  be  certain,  is 
unjust,  for  it  is  not  placed  on  those  who  should  and  are  best  able  to 
bear  it.  Under  the  present  tax  laws,  those  whom  we  have  a  habit 
of  thinking  pay  the  tax  are  in  reality  tax  collectors  from  those  who 
rent,  use  and  purchase.  Such  factors  as  labor,  sea  and  rail  trans¬ 
portation,  supply  of  capital  and  interest  rates  do,  of  course,  con¬ 
tribute  to  the  prosperity  of  American  industries — and  I  speak  of 
industries  in  the  broad  sense.  But  back  of  these  factors,  and  more 
fundamental,  is  another  factor — taxation.  Until  we  have  just  and 
scientific  taxation — wars  or  no  wars — the  prosperity  of  American 
industries  will  be  uncertain.  Until  tariff  walls  are  broken  down  and 
taxes  levied  from  site  values  only,  we  must  always  be  prepared  for 
the  outbreak  of  war. 


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